Market Analysis

It’s not different this time

It’s not different this time. It’s worse.

For weeks the bull machine was relentless, ignoring everything on the heels of massive central bank intervention. The warning signs kept mounting in charts getting extended, a narrowing of the rally, volatility building bullish patterns, divergences galore and investors recklessly going full retard as I called it.

Nothing matters until it does. Suddenly it does and all the building technical structures suddenly mattered and we see large reversals and technical reversals across the board.

One can certainly make the case that this here is just a long overdue correction in an extended market. And this may well be the case, but as I outlined this weekend it may not be as markets hit a key technical zone:

And tech looks auspiciously close to repeating the sins of the past:

Ironically all of this coming on the heels of flashy magazine covers eerily similar to the ones of 20 years ago:

And retail, thanks to now free commissions and a Fed giving people the illusion that risk assets are risk free, jumping on the chasing vertical charts game:

And now gains are disappearing faster then they came on the coronavirus everybody again dismissed as temporary. After over 10 years of non stop central bank intervention investors have become trained to ignore all bad news as central bankers always managed to distort the price discovery equation and made ‘by the dip’ the new age religion. This is the legacy central banks have created and now retail has finally jumped in hook, line and sinker into the largest economic market disconnect in history:

158.9% last week. Well done.

Who knows, maybe central banks succeed again and that is certainly part of the binary outcome equation to consider here in 2020. More rate cuts, more QE, more stimulus, it’s all coming.

But know this: If they lose control and this virus is not contained we’re staring at a rapidly deteriorating global economy which could easily trigger a global recession. No QE can fix this if the global supply chain shuts down. The real tragedy:

And that’s why it’s worse. They’ve already stimulated for over 10 years. Due to their failure to normalize they’ve left themselves weak with little incremental stimulus to offer. Sure they can cut a few more times, but it took over 500 basis points in cuts to stop the bleeding in 2000 and 2007.

Well, here we are:

More debt ever, with precious little ammunition to deal with a real downturn. Well done.

So yes, let’s all hope this virus that has now migrated globally gets contained quickly. So far that does not appear to be the case and the message from WHO is concerning:

They don’t know and they don’t know how to deal with it.

Which is what I said 2 weeks ago:

Nobody knows and with over 7.5 billion people on the planet there’s really no script for this. And yet investors ignored it all hoping the Fed’s liquidity will trump it all. It hasn’t, if anything it looks like a massive potential trap now.

I do hope they figure it out soon, nobody wants to deal with a pandemic. So far stocks are down only about 4%-5% from last week’s all time highs and are short term oversold, but valuations have not anywhere near priced in a global recession.

So 2020 then becomes a binary proposition: Either this virus gets contained in short order and its impact will be indeed temporary or it won’t. That’s not in any of our control. If it gets controlled then yes central banks can kick the can again and be left with even less ammunition for when the next crisis hits which is not exactly an encouraging message in the longer term.

But if this is not controlled then we’re staring at a global recession in which case the yield curve that everybody ignored has a stern message: It’s not different this time, it never was. And given the global structural backdrop in debt, valuations,  demographics and tired central bank policies: It’s worse, much worse.

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Categories: Market Analysis

6 replies »

  1. another great analysis from the one, the only SVEN! Your analysis of the markets is right-on. The excesses are being unwound. ‘Bout time.

  2. …until it does. (as I said a few weeks back)
    Bummer that Sven (excellent synopsis btw, thanks) and I were a week or two early, cost me a couple of grand, just shows the market can keep ignoring reality for longer than is remotely sane. Still, I just made most of that back so no prob.

    Where are we at now? I’m expecting a drop below 2500 (SPX) but that will be a choppy ride with several interventions to spike up and likely to take a few months, Need to lock in profits on the way down and maybe make a bit on bounces. Yes, there’ll probably be a half point cut from the Fed when we cross 3000, maybe they’ll have the balls to wait till March meet but I doubt it. Will be interesting to watch the morning Repos every day.

    Just watched the US close. SPX 3225 only just held, Morgan Stanley were all doomist if it didn’t, LOL.

  3. His read is great on the market. Except I doubt that the interventions will ever stop. The Fed is hooked on injecting monetary heroine into the market to keep it high forever. There is no price discovery or fair value assessment going on. I would be shocked if they ever again let it drop even 10%.

  4. CBs will push rates negative..globally coordinated. Money will flood market even in recession and multiples will double because TINA

  5. IS to the Nth Power…!!!

    After Yesterday GOLDEN Panic Buying TOP …

    created by Mainstream Media Prestidigitators

    ” End of Everything but Gold ”

    Now dominating

    Golden Awakening & Shot Down…

  6. Be careful investing as even though the coronavirus is now projected to cost the global economy at least $1 Trillion dollars (Bloomberg), our President is fixated on the very odd premise that the SP500 level is a barometer for getting reelected (odd considering that the top 10% own 84% of all market assets).

    Note that the President hit twitter on Monday evening with this statement:

    “Stock market starting to look very good to me!”

    The President is crazed about the stock market, odd again given that his base has really no significant amount of stock holdings, but I regress. Yet every opportunity for his admin to pump stocks, they will. It will work until it doesn’t, it is a true gamble at this point as the game is rigged.

    Also note that per Bloomberg the White House is going to not take this possible global pandemic as serious as they should, because they know that isolating the US population to prevent deaths would hurt the economy, and thus the President getting reelected. They are treating this situation like a war game, where the theory that it is better to sacrafice some wage slaves for the greater good of higher GDP. Be prepared to see many more “All is Well” and “Everything is Under Control” tweets in the near future. See Bloomberg comment below per

    The people added that Trump was reluctant to restrict travel between the U.S. and China, and is even more wary of travel curbs involving other countries. His administration, the people said, must strike a balance between safeguarding Americans and not causing a panic that would jeopardize the economy.


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